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Thiel's Four Steps to Success

Feb. 26 was a big day for Internet entrepreneurs in Taiwan. Their idol, the "don" of the so-called "PayPal Mafia" Peter Thiel, was in the country for the first time to give a talk.

The 600 people crowded into the lecture hall at the Taipei International Convention Center were not the typical group of older Taiwanese business leaders and white collar workers who usually show up at such high-profile seminars. Instead, they were either stylishly dressed fashion-conscious young adults with their rolled up pant legs or techies in their jackets and blue jeans.

They cannot be taken lightly, many of them having already kindled fires of innovation at home.

One of the first to arrive for Thiel's speech was AppWorks founder Jamie Lin. In 2010, he introduced to Taiwan the startup accelerator model commonly used overseas. Outside observers were not sure what he was up to, but Lin has been able to gradually revive Taiwan's long-moribund angel venture capital environment.

Also in attendance were Jerry and Andy Kuo, the founders of themed e-commerce website operator Kuo Brothers Corp., and Peter Yen, the founder of online shop Pinkoi that showcases the products of independent Taiwanese designers. Their two ventures represent new and influential e-commerce platforms in different niches that have strong sales potential.

Then there was Fox Hsiao, founder of online recipe sharing service iCook and Michael Chou, founder of Internet media Yowu Report, who are both managing content in distinctive fields. One is eating into sales of cookbooks in Taiwan, the other is using in-depth, analytical content to successfully create new value in stark contrast to most new media sites that embrace short, superficial articles.

Sega Cheng, one of Google Taiwan's earliest employees who later left the company to join Internet Karaoke platform iKala, was present at the event and broadcast Thiel's speech live through iKala-backed real-time video streaming platform LIVEhouse.in.

Another notable was the always glamorous blogger "Norika" (given name Chen Ho-ying), who has joined hands with music streaming service KKBox to take on Spotify, the new giant in the commercial music streaming field.

Yet all of these young faces in the crowd were simply representative of Taiwan's young innovators and entrepreneurs. The message behind Thiel's visit was of even greater significance to Taiwan's future.

The Impact of Zero to One

Light Lin, the founder and chairman of Taiwan's biggest crowd funding platform FlyingV, explained the attraction. Acknowledging that Thiel's philosophy of "building a monopoly to create and capture lasting value" may not be applicable to everybody, Lin said that the groundbreaking successes racked up by Thiel and PayPal's other founders "tell us that what we're doing can work and that there's hope."

Light Lin, Founder of Flying V

What Taiwan urgently needs is its own "Peter Thiel." Kai-Fu Lee, the chairman of venture capital firm Innovation Works and a longtime observer of ethnic Chinese entrepreneurial circles, says that unlike China, which already has Jack Ma of Alibaba and Lei Jun of Xiaomi, Taiwan's Internet sector desperately needs role models who can inspire others to emulate them.

While welcoming the "foreign standard-bearer" Thiel, Lee was also hoping to see a Taiwanese hero emerge, concerned that many sectors in the country were unable to escape their comfort zones.

Lin says the businesses launched by many Internet entrepreneurs cannot be easily defined or evaluated at their inception using existing business parameters. "Because they aren't understood, they are underestimated. Businesses underestimate the threat they can pose to their sectors in the future."

Thiel argues that the most successful entrepreneurs are not those determined to defeat others but rather people who hunger to create new value, because only the results of innovation are capable of shaking up or eliminating other sectors.

In Zero to One, Thiel lays out a four-step process to creating a "monopoly," a term he defines as "the kind of company that is so good at what it does that no other firm can offer a close substitute."

Step 1: Start with Small Markets

The ideal target market for start-ups is a small, distinct group of people clustered together who are badly underserved, argues Thiel in his book.

Many Internet startups in Taiwan seem to follow this principle. Cheng provides a classic example of this strategy, having focused a new venture on a small niche. After leaving Google and its prosperous confines in 2012, Cheng was recruited by iKala founder Chang Tse-ming to get involved with a company founded less than five years earlier in an industry – the online karaoke market – whose growth had stalled.

Cheng did his homework and quickly realized that brick-and-mortar KTV outlets such as PartyWorld and Holiday KTV dominate Taiwan's NT$5 billion karaoke market. He also concluded, however, that an online karaoke venture could be successful by focusing on the segment of people who loved to sing and practiced their singing rather than fight with the big chains over the same market.

As a result, he developed a mobile version of the service that enabled members to turn their smartphones into microphones, an innovation that attracted nearly 600,000 members.

To many observers, Cheng's jump from a small niche market into the more ambitious world of video streaming appeared bold and risky. But in fact, despite being in business for less than a year, LIVEhouse.in is now regularly broadcasting through over 600 channels a week, reaching more than 1 million unique users per month.

Having successfully "monopolized" a small niche market, Cheng is ready to move to the next step – building economies of scale.

Step 2: Expanding Economies of Scale

Taiwanese companies often complain of having trouble expanding their scale because of the size limitation of the domestic market. In theory, they shouldn't feel constrained in the boundary-less world of the Internet, but the fact is that very few Taiwanese Internet startups have been able to develop a presence overseas.

Chris Lin, Founder of KKbox

One of the few domestic Internet firms to break through in foreign markets is KKbox. Now in its 11th year in business, KKbox has become Asia's biggest online music streaming platform with 10 million members, 2 million paying members and presences in Taiwan, Hong Kong, Macau, Japan, Malaysia, Singapore and Thailand.

But KKbox, which has achieved "monopoly" status in the Chinese-language digital music distribution world, is facing the prospect of being dislodged from its perch.

KKbox's dominant position has been challenged since 2013. First it was Spotify entering Taiwan, followed by YouTube beginning to snatch a piece of the online music pie. Then there are China's YY.com, which has 3 million online listeners daily, and free music streaming platform Joox, introduced by Tencent late last year. To KKbox CEO Chris Lin, because the two Chinese companies do not abide by the international music industry's legal restrictions, they have far more innovative energy than their rivals around the globe.

Amid the fierce battle unfolding in its industry and free plays having already become a major trend (Spotify's desktop version offers unlimited free listening while KKbox lets members listen to five free songs a day), KKbox decided to join forces with a real-time bidding advertising expert before plunging further into free services.

People are usually shocked the first time they meet that expert, Norika Chen, known simply as Norika in Internet circles, when they learn that this woman clad in high heels and a mini-skirt, with flowing air and jazzy makeup, is actually a man.

"When God shuts a door, he opens up a window," Chen says to describe himself. After seeking help unsuccessfully from several psychologists, he discovered he had a gift for computer programming and Internet marketing.

"I have never studied computer science, but I write better programs that anybody. I don't understand the principles of marketing, but the marketing strategies I think up from a people perspective always deliver great results," he says as he lists the many innovations he developed through "hotel-world.com," which he started with a friend in 2007.

Among them were offering packages that included tailored itineraries and rental cars and selling clients to buy hotel vouchers through an online stored value system. These many innovations were in place long before online travel agents or car rental companies picked up on the ideas.

Jamie Lin, Co-founder of Appworks

But because the online hotel service too far ahead of its time, it eventually closed down. Chen retained his expertise, however, and especially his knowledge of the real-time advertising field. Every time he posts an article online, more than a thousand followers eagerly read it.

That's why the normally conservative KKbox, anticipating that advertising will be the key battlefield as member numbers soar in the future, decided to invest in Paganini Plus Limited and appoint Chen as its general manager. It has put full responsibility for its advertising agency business in the hands of a man who "sees the world in a way that's different from others."

Step 3: Don't Bother with Disruption

Many people often describe Internet entrepreneurs as "disruptors," but Thiel says he has never liked the term.

"Disruption gets your attention, but it does not necessarily get you success," he says in an interview with CommonWealth Magazine. "Your goal is not to destroy existing companies. Your goal is to build a successful company."

This high-tech enthusiast, who turns 40 this year and was full of ambition to start his own business from the time he began college, recalls that when he founded Armorize, he never thought of "subverting" well-established companies like Trend Micro or Symantec and in fact hoped to cooperate with them. His objective was to bring his own antivirus ideas to fruition.

"Everything was based on meeting needs and then using innovative methods to satisfy them," Huang says. "The world should have better ways of doing things. I believed I could change them."

Around 2005, the mainstream concepts driving virus scanning technology were that it had to be fast and not use too many computing resources or take up too much of a hard drive's memory.

Huang strongly disagreed with that "scan what you can" approach, and he also believed that storage space for antivirus software would not be a problem in the cloud computing era.

His challenge was to persuade users to allow incoming or outgoing e-mails to first be diverted to the cloud to be scanned, a very hard sell at the time.

But Huang eventually succeeded. In 2009, major information vendor VeriSign (which was acquired by Symantec in 2010) finally accepted Huang's concept and listed Armorize as one of its technology partners. In 2013, Armorize was acquired by U.S.-based security-as-a-service provider Proofpoint, Inc. for US$25 million.

Huang never set his sights on "disrupting" the industry when he launched his business, but his ambition to make the world better still resulted in the industry changing.

"The Internet has never been out to topple anyone. It's simply taken tools once concentrated in the hands of the few and made them available to the many, making everything more efficient," says AppWorks' Lin, who has a wealth of experience in incubating Internet startups and recently raised a NT$1.5 billion venture capital that included investment from the government's National Development Fund.

Lin contends that if a company does not want to be dislodged from its position, the best approach is to immediately embrace the Internet.

Step No. 4: Be the Last Mover

Thiel strongly disputes the concept of first-mover advantage.

"The really great technology companies are not just the first ones. It's often the last-movers. So Microsoft is the last operating system. They remained a monopoly for many years … and had many, many good years. Google is the last search engine. That makes it so valuable. It's locked-in for decades," Thiel said in the interview with CommonWealth.

"So it's always the last mover that matters at least as much as first movers."

The philosophy is a beacon not only for Internet startups poised to rise up but to businesses across every industry afraid of being displaced.

Ultimately, Thiel's appearance sparked hope within Taiwan's Internet circles and impelled the country's entrepreneurs to accelerate their steps and secure a spot riding the innovation and entrepreneurial wave. Only then will they be ready to catch up and make a late move.